Community bank deposits at high, spotlighting loans targets

By Catherine Lackner, Miami Today

Community bank deposits are at an all-time high right now, but has that created problems in finding worthy loan risks, given government limitations?

“Banks continue to want to increase their deposit base, and there are multiple incentives for banks to do so,” said Lewis Cohen, a partner in the Miami law firm of Cohen Nicoleau, a boutique banking law firm. “Customer deposits are sources of new customer acquisition and, of course, a means of customer retention.”

Deposit accounts, he said, “are a primary source of check-writing, wire-transfer and dormant–account fees. An increase in customer base is critical to virtually any bank, and once they have that customer relationship in place, banks have a variety of products and services to offer.

“Lending is a second major sources of bank income, but there are limitations on it,” he added. Banks are prohibited from lending more than 15% of their capital and surplus to any one borrower, he explained.

“The exception is if a loan is secured by a government backed program,” such as the Small Business Administration, Federal Housing Administration of Department of Housing and Urban Development, he said, because the risk of default is virtually zero.

“Loans themselves are a source of income for banks, so they are certainly motivated to bring in more customers,” who might apply for loans, Mr. Cohen said. “Having a lending relationship with that customer is part of having a well-rounded bank. Typically, banks are not turning away deposits, as there are still many lending opportunities out there.”

Banks being awash with cash “is a temporary luxury,” said Carlos Fernandez-Guzman, president of Pacific National Bank. “Once rates rise, those dollars will start to flow outside banks. Lending is the big challenge.”

For many banks, that lending will lean more toward commercial, rather than residential, loans, he said. Because of government regulations, some banks, like Bank United, have stepped away from residential lending, he said.

“The regulations have swung so far that it has had this unintended consequence,” Mr. Fernandez-Guzman said. “The risk of error is extremely high. We’ve stepped up our lending to owner-occupied commercial real estate, where we can compete.”

Pacific Bank can offer attractive rates on small to midsize commercial loans, which he defines as being between $10 million and $30 million. “We can do a much better job,” than the larger national banks.

The larger loans, in the $60 million to $80 million range, “the big boys can do under one pen, without partners,” he said. “We’re not even on the screen for that.” Because they have more assets, the national banks aren’t so hampered by the 15% rule, he added.

Black-market lenders, unfettered by government regulation, have entered the market, Mr. Fernandez-Guzman said. “They can provide working capital, but at higher rates than the banks can. But for these lenders, it’s strictly about the numbers.”

The relationship between bank and borrower is nonexistent, he said, “whereas with a community bank, you had a history built up, and when hard times hit your clients, you stepped up to the plate to help them make it through.”

“Community banks remain stressed,” agreed by Hal Lewis, a partner in the Pathman Lewis law firm who focuses his practice on banking. “The regulatory environment works better for the bigger banks,” because it may require the hiring of more employees to comply with the complicated reporting requirements.

“Lending is on an upward trend, but there’s a lot of pressure,” he said. While banks may encourage more deposits so that they will have money to lend, they also have to raise their deposit rates to attract that business, in an era of very competitive loan rates.

“It’s a very tight spread,” Mr. Lewis said. “It’s becoming difficult for community banks to compete, and they have always been the backbone of the local banking industry.”

Association Lawyers Get New Florida Bar Certification

By Samantha Joseph, Daily Business Review

Condominium association lawyers are celebrating a newly created Florida Bar certification for specialists in condominium and planned development law.

With multifamily developments and related litigation on the rise, proponents say the new certification reflects the nuanced complexities of a niche practice area focused on condo developments, commercial and residential community associations, cooperatives and recreational organizations like golf and tennis clubs.

“It’s like hitting the bull’s-eye on the practice area, finally,” said Jonathan Goldstein, a senior associate at Haber Slade in Miami, who’s worked with community associations since 2006. “It’s a very exciting development for community development practitioners. We’ve had to seek certification in major areas that didn’t reach the heart of the practice.”

That changed last week when the state Supreme Court approved an amendment to bar rules setting new certification and recertification standards.

Attorneys like Lewis Cohen of Cohen Nicoleau in Miami said the change will help identify counsel skilled in the niche practice area.

“There are constant issues involving community associations. It’s not just condominiums anymore,” said Michael Gelfand of Gelfand & Arpe in West Palm Beach, a bar-certified real estate lawyer who pushed for the change. “The marketplace has changed continuously. Now we have very sophisticated developments.”

In Florida, where part-time residents help bolster the popularity of condo living, evolving legislation seeks to protect the assets that often represent personal and investment interest for many buyers.

The last five years have brought rules on electronic attendance to determine quorums for condo and homeowner association meetings, guidance on accessing abandoned properties to make repairs, nuanced personal injury issues, requirements for record transfers and clarification of association and owner rights in obtaining financing.

“Understanding the interplay has become much more complex, and thus the need for certification arose,” Gelfand said.

The new certification was years in the making. It sets out several minimum standards, including at least five years of practice in condo and planned development law.

“From our perspective … it’s a very good mechanism for protecting the public and making sure they have a good way to meet their legal needs,” said Miami-Dade Assistant County Attorney Cynthia Johnson-Stacks, who chairs the Florida Bar’s board of legal specialization and education. “The proposing group in the BLSCE thinks there is a real need for consumers of legal services to have this mechanism to identify highly skilled, tested and evaluated lawyers.”

Money Laundering

Feds move to strip secrecy from cash real estate deals in Miami

By Brian Bandell, Senior Reporter

The days of mysterious shell companies plunking down millions of dollars for homes in Miami-Dade County could be over.

The Financial Crimes Enforcement Network (FinCEN) issued a temporary order that aims to end the secrecy in $1 million-plus cash deals in Miami-Dade and Manhattan to combat potential money laundering. Once the rule takes effect, title insurance companies would have to identify the natural persons behind the companies in such residential deals to law enforcement. The information likely wouldn’t be made public in court records.

Cash sales are huge in Miami-Dade. They accounted for 54.9 percent of all existing home sales in November, according to the Miami Association of Realtors. That includes 67.5 percent of all existing condo sales. These cash buyers are often foreigners. Miami Association spokeswoman Lynda Fernandez noted that all-cash luxury transactions represent only 3.6 percent of deals in the county so she doesn’t expect this to have a big impact on the overall market.

Condo developers have mostly relied on cash deals for their projects. That means the identities of scores of buyers with pre-sale contracts of over $1 million would be revealed to regulators.

Foreign buyers could be concerned that U.S. regulators would share information about their big purchases with their native countries as part of a probe, which could prevent them from hiding assets from their native governments.

In the past, criminals such as drug dealers, Ponzi schemers and corrupt foreign politicians have used dirty money to purchase Miami-Dade real estate and then had it seized by federal officials.

The Business Journal wrote a feature story on the money laundering loophole for real estate in 2013.

“It’s not exactly breaking news, film at 11. This is something that’s being going on for as long as I’ve been involved in law enforcement and beyond,” said Theresa Van Vliet, an attorney at Genovese Joblove & Battista and a former federal prosecutor in Miami. “There have been drug dealers and Ponzi schemers and racketeers that have lost houses here for years. This will make it a little easier to start to identify when those things happen cold based on a title company’s hopefully accurate reporting.”

In the Cocaine Cowboys heydays in the 1980s, law enforcement frequently followed the money in Miami to discover who the dealers were before the found the drugs, she said. Van Vliet said the names would probably be run through national and international databases of criminals and suspicious individuals and potentially shared with foreign governments if there’s a multilateral agreement.

FinCEN previously cracked down on anti-money laundering rules for residential loans and its remaining concern is preventing money laundering by individuals who attempt to hide their assets and identity with all-cash residential purchases in big cities.

“We are seeking to understand the risk that corrupt foreign officials, or transnational criminals, may be using premium U.S. real estate to secretly invest millions in dirty money,” FinCEN Director Jennifer Shasky Calvery said. “Over the years, our rules have evolved to make the standard mortgage market more transparent and less hospitable to fraud and money laundering. But cash purchases present a more complex gap that we seek to address. These GTOs (Geographic Targeting Orders) will produce valuable data that will assist law enforcement and inform our broader efforts to combat money laundering in the real estate sector.”

The GTO will start on March 1 and expire on August 27. The temporary period could be extended but the rule couldn’t be made permanent without going through an official rule-making process.

This is a bad time in the real estate cycle for this regulation to take place, said Peter Zalewski, principal of CraneSpotters.com, which tracks the South Florida new condo market. It was already becoming harder to find buyers and this should make it even tougher, he said. Immediately, the news should empower legitimate buyers to demand bargains because they think there’s less competition, and it should scare some foreign nationals that value their secrecy away from pre-construction deals, Zalewski said.

Zalewski isn’t sure that title insurers are the best companies to find buyer information because most of them are small operations that work on high volume. Most title companies don’t have the resources to verify transactions, especially if LLCs use “straw owners” instead of listing the real source of funds, Zalewski said.

As for foreign buyers, Zalewski noted they could just as easily take their money to markets like Panama that still allow secretive LLCs.

FinCEN has revealed exactly who title companies will gather buyer identifying information, said Wayne Stanley, spokesman for industry trade group American Title Association. This will apply mostly to large title insurance underwriters, he added.

The title association is waiting to hear exactly what information FinCEN wants to know about transactions, how it should be reported and the timing of that reporting, Stanley said. He’s not sure whether title companies will be forced to reject $1 million cash buyers that refuse to reveal their identities.

“I don’t think they are trying to put us in the position of being detective so on the question of how much due diligence will be required by the title agent, we aren’t sure yet,” Stanley said.

Since the Patriot Act forced financial institutions to closely examine sources of funds, many people who aim to hide assets in the United States have chosen premium real estate in big cities as the vehicle, said Lewis Cohen, a banking attorney with Cohen Nicoleau in Miami. It was only a matter of time until FinCEN addressed this, he said.
Cohen said that a title company probably wouldn’t prevent a deal from closing because of the GTO. However, if regulators find criminal activity, they might force the buyer to forfeit the property, he said.

“It will have a chilling effect on these kind of transactions in the real estate market,” Cohen said. “You’re putting another roadblock in the way of illegal activity so that’s the greater good the Treasury Department is trying to accomplish.”

Hal Lewis, an attorney at Pathman Lewis in Miami, doubts the FinCEN rule would hurt the real estate market because the overwhelming majority of buyers are legitimate, but he feels regulators created an overly burdensome rule for private industry.

“I have a lot of questions about why the private sector should be responsible for the job of the U.S. government here,” Lewis said. “Developers develop and sellers sell. They shouldn’t be reporting arms for the U.S. government.”

FinCEN hasn’t provided details on how the rule will work so it’s hard to know what title companies and closing agents will need to do to comply, Lewis said. The problem is that developers and sellers don’t have the tools to conduct a thorough source of funds investigation like a bank does, and that shouldn’t be their responsibility, he said. Even if the buyer signs a form saying they own the LLC, it would be hard for the seller to verify that’s accurate, Lewis said.

“I don’t like the idea where my clients become my suspects or my buyers become my suspects,” Lewis said.

Attorney Andrew Ittleman, of Fuerst Ittleman David & Joseph, noted this is the third GTO FinCEN has issued in Miami in the past year and that’s unprecedented. The other two involved anti-money laundering measuring for check cashing
companies and electronics exporters.

“Targeting high value residential properties in New York and Miami, the GTO has an unbelievable high profile, and will reach far beyond title insurance companies to prospective real estate buyers,” Ittleman said. “To the extent that prospective real estate purchasers value their privacy and secrecy – even for reasons having absolutely nothing to do with money laundering – they may now seek to invest their money into other assets or in real estate in other markets.”

BANK SECRECY ACT

By Lewis R. Cohen, Esquire

The Financial Recordkeeping and Reporting of Currency and Foreign Transactions Act of 1970 (31 U.S.C. 5311 et. seq.) is referred to as the Bank Secrecy Act (“BSA”). The BSA requires U.S. financial institutions to maintain specified records involving currency transactions and the financial institution’s customer relationships.

In particular, U.S. financial institutions are required to develop and maintain knowledge of the institution’s customers and develop systems that predict the type and frequency of transactions in which its customers are likely to engage. When account activity varies from a customer’s profile (e.g., significant increases in the number or amount of transactions) the financial institution must ascertain whether the transaction has a legitimate and lawful purpose, and keep a record of its due diligence for examination by regulators. Many attorneys have received BSA inquiries from their banks regarding trust account activity involving large or frequent transactions.

Rule 4-1.6 of the Rules Regulating The Florida Bar provides that “a lawyer shall not reveal information relating to the representation of a client.” The rule’s commentary makes clear that an attorney’s ethical duty of confidentiality is broader in scope than the well-founded principle of attorney-client privilege, and extends not merely to matters communicated in confidence by the client to the attorney, but “to all information relating to the representation of the client, whatever its source.”

A financial institution’s BSA inquiry into an attorney’s account activity, including trust account activity, often gives rise to concerns regarding attorney-client privilege and confidentiality. Transactions that are lawful but deviate from an attorney’s normal account activity patterns may trigger the filing of a Suspicious Activity Report (SAR) with the federal government, unless the financial institution can satisfactorily complete and document its due diligence and establish a reasonable explanation for the account activity. Failure to detect “out of profile” activity and to conduct and document its due diligence can result in severe penalties for the financial institution.

Federal regulatory agencies and bar associations have been less than sympathetic to each another’s positions with respect to the potential conflict between a financial institution’s duty to inquire and an attorney’s duty to maintain confidentiality. As a result, attorneys and financial institutions alike may find themselves in a quandary regarding how to enable a financial institution to document that a flagged transaction has a legitimate and lawful purpose while at the same time allowing an attorney to comply with his or her obligation to maintain the confidentiality of information relating to the representation of a client.

Federal case law regarding attorney disclosures has generally favored federal law over state law or custom, and has frequently involved a “balancing of harms” test in weighing both the benefits and harm of disclosure, and the public policy implications involved. See, for example, United States v. Goldberger & Dubin, P.C. 935 F.2d 501 (1991). A similar “balancing of harms” approach was taken by The Florida Bar when, in Ethics Opinion 93-5 {October 1, 1994) {revised 8-24-11) the committee stated:

“An attorney who is an agent for a title insurance company may not permit the title insurer to audit the attorney’s general trust account without consent of the affected clients. The attorney, however, need not obtain client consent before permitting the insurer to audit a special trust account used exclusively for transactions in which the attorney acts as the title or real estate settlement agent.”

In rendering Opinion 93-5, The Florida Bar’s committee reasoned that one of the exceptions to the Rule 4-1.6 duty of confidentiality is “to serve the clients interests” and that audits by title insurance underwriters help ensure the safety of the deposited funds. In equating “the clients interests” to the general safety of deposits, The Florida Bar committee applied a public policy approach to make an exception to the confidentially rule.

While one may argue whether the BSA’s goal of fighting money laundering and terrorist financing serves the public good, The Florida Bar has made no such “public policy” exception for BSA inquiries, and until there is some reconciliation between the two mandates, attorneys and financial institutions alike remain challenged to find common ground on the issue.

Here are some suggestions to help solve the dilemma. First, communicate with your relationship manager. If your financial institution understands the general nature of your practice and the types of transactions and volume of activity to expect, this can assist your financial institution in completing its due diligence while minimizing the need for inquiry. Second, understand that a financial institution’s BSA inquiries are not challenges to your honesty or integrity. By understanding the recordkeeping and reporting requirements that the BSA imposes on financial institutions, and familiarizing your relationship manager with the nature of your practice and the frequency and volume of transaction activity to anticipate, you can help facilitate your financial institution’s compliance with its obligations under federal law without compromising your ethical obligations under Rule 4-1.6 of the Rules Regulating The Florida Bar.

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Attorney Lewis Cohen is a co-founder of Lewis R. Cohen, P.A.., with offices in Miami-Dade County. He has more than 35 years of experience in the areas of banking, commercial finance, real property finance, real estate transactions and commercial litigation. Mr. Cohen can be reached at lewis.cohen@lrcohenlaw.com or (305) 722-5698.

Macy’s property in downtown Miami sells for $15.55M

Owners of the historic property where Macy’s department store is located in downtown Miami have sold it for $15.55 million – or $322.26 per square foot – to New York-based Aetna Realty Group.

Miami attorney Lewis R. Cohen handled the sale of 48,000 square feet straddling Miami Avenue on behalf of 22 descendants of Miami business pioneer Richard Ashby. The property comprises most of the land that the Macy’s store occupies at Flagler Street and Miami Ave., while Macy’s Inc. owns a smaller parcel on the east side of Miami Ave.

Ashby originally leased the property to Burdines in 1917 for about $30,000 a year. That historic lease rate was all that Macy’s was paying on that portion of the property under its old lease. The old lease was a 99-year agreement, so it was set to expire in a few years.

Cohen said Macy’s struck a new lease with Aetna but said he did not know the terms, and he believes the store will continue operating for the time being. However, Macy’s spokesman Jim Sluzewski said in an email that the 1917 lease remains in effect. But Sluzewski declined to respond to questions about the imminent expiration of the lease.

Cohen said the sale was driven partly by fears of capital gains tax increases, which meant it had to close by the end of the year.

Ashby descendants were tracked down in Albania, Scotland, California and other locations.

“Now that the lease was expiring, it was necessary to track down all the descendants,” Cohen said in an interview. “Some had larger portions of ownership than others, depending on how far down the family tree they were. Fortunately we didn’t have to litigate anything because we were able to engineer a sale that keeps Macy’s there and satisfied everyone,” Cohen said.

He said three bidders went to the finish line on the deal.

“Getting consensus was a huge task. It was one of the more complex deals I can imagine, and I’ve been doing this for 32 years,” Cohen said.

Aetna will have to close on Macy’s Inc. portion if they want to develop the entire two-block area some day. A walking bridge, underground tunnels and the Metromover connect the two Macy’s buildings across Miami Avenue.

Cohen said he also cleared up title issues, ancestry investigations, acquisition of long-lost documents and multiple administrations of long-deceased heirs of the Ashby fortune.

“Anticipated changes to the tax laws would have sent the deal right back to the drawing board if closing did not occur by Dec. 31,” Cohen said.

According to Cohen, the deadline pressure worked to his advantage because multiple bidders were involved.

Regulation Z formally prohibited a residential mortgage lender from making a “higher priced” residential mortgage loan without regard to the consumer’s ability to repay the loan. A “higher priced” loan is a residential mortgage loan with an interest rate greater than the Average Prime Offer Rate (“APOR”), as published by the Federal Reserve Board, plus a margin. The margin over the APOR index varies, depending on whether the loan is secured by a first lien on the dwelling, a second lien on the dwelling, or whether the loan is a jumbo loan. Sections 1411 and 1412 of the Act as implemented by the CFPB (the “Final Rule”) extends Regulation Z’s ability to repay (“ATR”) requirements to most consumer credit transactions secured by a dwelling. The core of the ATR requirement is that residential mortgage lenders make a reasonable, good faith determination at or before consummation of the loan that the consumer will be able to repay the loan.

The Final Rule Provides a Safe Harbor
The Final Rule also created a category of mortgage loans, called “Qualified Mortgages,” which provide a presumption of compliance with the ATR requirements of the Final Rule. The Final Rule provides a safe harbor for Qualified Mortgages which are below the higher priced mortgage loan threshold, and a rebuttable presumption of compliance for mortgage loans above that threshold. A “safe harbor” conclusively establishes that the lender complied with the ATR requirements when originating the mortgage. A “rebuttable presumption” means that a borrower may assert a claim that the Lender did not make a good faith determination of repayment ability, and therefore violated the ATR rule. However, to prevail on that argument under the Final Rule, the mortgagor must show that based on the information available to the creditor at the time the mortgage loan was made, the consumer did not have enough residual income left to meet living expenses after paying their mortgage and other debts.

The Final Rule does not apply to the modification (as opposed to refinance, as defined in Regulation Z) of an existing loan. Therefore, a creditor may provide a loan modification to a consumer without complying with the ATR requirements of the Final Rule.

Statutory Damages
The Dodd-Frank Act creates a cause of action and an affirmative defense for violation of the ATR requirements. A borrower who brings a timely action for violation of the ATR requirements of the Final Rule may recover special statutory damages in an amount equal to the sum of all finance charges and fees he or she paid, unless the lender can demonstrate that the failure to comply was not material. These statutory damages are in addition to the recoveries generally permitted for TILA violations, which include actual damages, statutory damages up to certain prescribed thresholds, and court costs and attorneys’ fees.

Attorney Lewis Cohen is a co-founder of Lewis R. Cohen, P.A.., with offices in Miami-Dade County. He has more than 35 years of experience in the areas of banking, commercial finance, real property finance, real estate transactions and commercial litigation. Mr. Cohen can be reached at lewis.cohen@lrcohenlaw.com or (305) 722-5698.

Hedge funds lead financial services flow into community

By Catherine Lackner

Drawn by both favorable weather and tax climates , financial service firms are a fast-growing business sector here.

“Hedge funds have been moving from New York and elsewhere to Miami,” said attorney Carlos Deupi, chairman of the Miami Finance Forum. “The hedge fund industry has been expanding in sync with Miami’s expansion as a global financial center.”

“Miami has evolved from a strictly private wealth banking center for Latinos and snowbirds to a complex and diversified international financial center,” said Mr. Deupi who is general counsel, executive vice president and corporate secretary of the BrillasGroup, a private equity and asset management firm.

The industry is one that has been quietly established here for some time, he added, and it includes venture capitalists, family offices and financial management firms as well as hedge and other funds.

“Miami has always had the year-round temperate climate that attracts new residents and there is no state income state tax,” he added. In New York City, federal, state and municipal taxes on high earners can total in excess of 50% of their salaries, he said.

Miami now has a robust infrastructure to banks, prime brokers, lawyers, accountants, fund administrators and other professionals which support the financial industry, “ Mr. Deupi said.

Not only is it a financial hub that is close to Latin America, but a major entry point for European travel as well. “You can get anywhere from here relatively quickly, to visit with your investors to perform due diligence,” he said.

There is strength in numbers, he said. ”In the old days when there were relatively few funds in Miami, it was a big risk to move down here and relocate your family. Now there’s an expanding industry with multiple employers. This expanded financial ecosystem offers more job opportunities to investment professionals. It’s not such an exotic place to move to anymore, Deupi said.

“Bill de Blasio, New York’s mayor, has his sights set on taxing high-earning financial professionals, whereas Miami is actively promoting itself to investment professionals,” he continued. “The Downtown Development Authority, Miami Commissioner Marc Surnoff and his colleagues have visited hundreds of fund managers, encouraging them to move here. The trend will continue as we keep rolling out the red carpet to hedge funds,” he said.

“I believe the trend we’ve seen of companies and other financial service firms moving to South Florida is going to continue,” agreed attorney Lewis Cohen who has more than 30 years’ experience in banking and real estate. “We have easy access to the Latin American market, which is an emerging market.

“The downtown area is maturing, making it more attractive to people who like an urban environment,” he added. “In downtown Miami, you can take walk and get somewhere without getting in your car. There’s a lot of office space under construction, and as soon as that inventory is gone , they will build more to fill the demand. It’s a win-win for all concerned.”

For people from the Northeast, there’s a comfort factor that extends beyond the climate, he added. “A lot of people have vacationed here, they have families here and they are familiar with the area. As more firms come, it will create synergies and a bigger pool of talent,” Mr. Cohen said.

The talent that is already here is impressive, said Jack Lowell, executive vice president of Pointe Group Advisors, a commercial real estate firm. He points especially to Fairholme Capital Management, “which is very highly ranked and does very well.”

He credits Miami’s “great lifestyle, no personal income tax and expanded cultural offerings” as factors that are drawing financial services firms, but the area’s proximity in Latin America is key, he added.

“Mexico is very important and, except for Argentina and Venezuela, all of the economies in South America are growing faster than that of the U.S. This is the best place for Latin American operations.

“Clearly, there is more business to be done with Mexico, Brazil and other Latin countries, and those folks all like doing business here, rather than New York or elsewhere,” Mr. Lowell said.

“It has to do with the culture, the vibrancy,” said Susan DeFranca, president and CEO of Douglas Elliman development Marketing, “Miami has become a year-round destination and is no longer seasonal.”

“The city has matured,” said Ms. DeFranca, whose firm has just signed an alliance with London-based Knight Frank Residential, one of the United Kingdom’s most prestigious firms. Based in New York City, she was in Miami for Art Basel. “Developers are avid collections of art,” she said.

She said she has noticed the relocation of financial firms to Miami, a trend she expects to see continue if the Northeast experiences extremely cold weather, as has been the case in recent years.

“It’s starting to rival New York City as a place where high-net-worth individuals invest and enjoy the lifestyle,” she said. Even in the summer, “you’re not coming into a ghost town which Miami used to be then. It will be the second largest financial capital after New York. In art, in real estate, luxury cars, the bar has been raised , definitely.”

Financial firms “will all flourish together,” said Nitin Motwani, a Downtown development Authority board member who has been a key player in attracting financial services firms to Miami. “As more firms come, it makes it easier to attract talent and investors, and to network.” The same principal is at work in other financial centers, including New York City, London and Hong Kong, he said.

And they will continue to relocate, said Mr. Motwani, who is managing director of the Encore Housing Opportunities Fund. “Our story keeps getting better and better.”

New federal mortgage disclosure rules that take effect Oct. 3 are meant to protect home buyers by providing a better picture of closing costs instead of estimates.

But some attorneys, real estate brokers and title companies predict the new rules from the Consumer Financial Protection Bureau will hobble the rebounding housing sector as lenders adopt a wait-and-see attitude during the rollout to limit their exposure to penalties and lawsuits.

“The biggest change is there’s going to be a slowdown,” mortgage lender Fred Abitbol, president of Miami-based Hypotec Inc., told the Daily Business Review. “The pipeline will move a lot slower from application to closing.”

The CFPB created the new rules by integrating the Real Estate Settlement Procedures Act and the Truth in Lending Act. It wiped out good-faith estimates and the HUD-1 settlement form that itemizes charges imposed on borrowers and sellers in real estate transactions. Two new forms use “clear language and design to make it easier for consumers to locate key information,” like interest rates, monthly payments and closing costs, according to the bureau.

Lenders will be liable for repaying the difference if their estimates fall short of actual costs—a scenario likely to have a ripple effect if attorneys and other professionals involved in transactions shift from preparing their own disclosure forms and closing statements and instead rely on lenders to provide that information.

“There used to be a tolerance where you could have a certain amount of variation between what you estimated and what the actual costs were,” said Lewis Cohen, a partner with Cohen Nicoleau in Miami. “Now there is zero tolerance.”

Except for recording fees and other third-party services like appraisals and title insurance, the CFPB wants lenders to be precise when outlining costs.

It also requires them to disclose any change greater than 0.125 of a percent to the annual percentage rate and allow up to seven days for loan applicants to acknowledge the change before closing.

“They’re trying to ensure that consumers are given true and fair disclosures before they borrow money to prevent certain abuses that took place in the industry previously,” said Cohen, who serves as general counsel to several community banks.

It’s an attempt to avoid a repeat of the robo-signing scandal that erupted during the housing collapse after regulators uncovered thousands of fraudulent mortgages that had not been reviewed by homeowners.

As a result, lenders must use the new loan estimate form and ensure that each buyer has one in hand no later than three business days after applying for a loan. They must also provide borrowers with a new closing disclosure form at least three business days before a loan closing.

These changes apply to most residential real estate loans, including closed-end or restrictive mortgages that cannot be prepaid, renegotiated or refinanced without penalties.

‘Much Uncertainty’

The new rules let off the hook lenders who make five or fewer mortgages per year and those providing home equity lines of credit, reverse mortgages and mortgages secured by mobile homes or dwellings not attached to land.

That still leaves a wide array of lenders, including small mortgage companies that make loans to sell on the secondary market, that will have to invest in software and training or risk violating the strict consumer protection rules. They won a short reprieve with a two-month extension that moved the implementation date from Aug. 1 to Oct. 3.

Lenders say regulatory compliance is now the largest line-item cost for community and regional banks, which in recent years have had to grapple with increased due diligence and heightened regulatory requirements under the USA Patriot Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act and other legislation.

But consumer advocates say the new disclosures will alleviate pressure and confusion by providing home buyers a cooling-off period to weigh unexpected changes.

“There’s so much uncertainty,” said attorney Robert Elias, principal of the Elias Law Firm of Miami. “The law is well-intentioned. The view is some lack of transparency in the closing and lending processes contributed to the real estate crises, and that forcing all parties to be fully transparent earlier in the process will lead to less confusion at the closing table. But the reality is that changes occur.”

Lenders like Hypotec will move slowly at first, scrutinizing each loan for changes that trigger disclosures, Abitbol said.

“They’ll find their way, but the first few months after the effective date of this law will probably be chaotic,” Cohen said. “No one expects it to be smooth.”